Manufacturing in U.S. Probably Expanded After Three-Year Low

Nationwide, American manufacturers are more optimistic about the outlook for sales and spending this year than service providers, signaling that factories will support the economic expansion after they slumped in recent months, according to a survey released Dec. 11 by the ISM group. Photographer: Jeff Kowalsky/Bloomberg

Jan. 2 (Bloomberg) -- Manufacturing in the U.S. probably
expanded in December, showing the industry is stabilizing after
reaching a three-year low, economists said before a report
today.

The Institute for Supply Management’s factory index rose to
50.4 from November’s 49.5, which was the lowest since July 2009,
according to the median forecast of 68 economists surveyed by
Bloomberg. A reading of 50 marks the dividing line between
expansion and contraction. Construction spending increased in
November, separate figures may show.

Sustained growth in the U.S., in part due to a housing
rebound, and steadying overseas markets are helping underpin
factory orders and keeping manufacturing from faltering. At the
same time, the threat of about $600 billion in tax increases and
budget cuts was a hurdle to bigger gains in investment and
production at the end of 2012.

“It’s a small improvement, which shows there isn’t extreme
near-term pessimism,” said Guy Berger, an economist at RBS
Securities Inc. in Stamford, Connecticut. “Fiscal policy
uncertainty has kept manufacturing in a zone where it’s not
growing rapidly but not shrinking rapidly either.”

The Tempe, Arizona-based ISM’s figures are due at 10 a.m.
New York time. Estimates in the Bloomberg survey ranged from 48
to 52.

Also at 10 a.m., Commerce Department figures may show
construction spending climbed 0.6 percent as record-low mortgage
rates lifted property purchases and encouraged homebuilding,
according to the Bloomberg survey median. Projections ranged
from no change to a gain of 1.5 percent.

Manufacturing, which accounts for about 12 percent of the
economy, was at the forefront of the recovery that began in June
2009.

Regional Data

Recent regional reports show a mixed picture. Manufacturing
in the Philadelphia area unexpectedly expanded in December to an
eight-month high, while New York-region factories shrank for the
fifth straight month.

The automobile industry remains one source of growth. Cars
and light trucks sold at a 15.5 million annual rate in November,
the most since February 2008, boosted in part by buyers
replacing cars damaged by superstorm Sandy, according to data
from Ward’s Automotive Group.

Manufacturing shares have rebounded since the end of July.
The Standard & Poor’s Supercomposite Machinery Index, which
includes Caterpillar Inc. and Deere & Co., has climbed 13.2
percent, outpacing a 3.4 percent rise in the broader S&P 500
measure.

Construction Equipment

An improving housing market also is helping manufacturers
such as Illinois Tool Works Inc., a maker of welding equipment,
construction supplies and auto parts.

“On the construction side, certainly we do expect housing
starts to get better from where they’ve been,” Ronald Kropp,
chief financial officer of Glenview, Illinois-based Illinois
Tool Works, said on a Dec. 14 conference call with analysts.
“Offsetting that is more than 50 percent of our construction
business is outside of the U.S., and Europe and Australia, which
is a big piece of it, is still slowing or negative. So, there
are some upsides on the U.S. side from residential, but offset
by international.”

Nationwide, American manufacturers are more optimistic
about the outlook for sales and spending this year than service
providers, signaling that factories will support the economic
expansion after they slumped in recent months, according to a
survey released Dec. 11 by the ISM group.

Purchasing managers at factories anticipate sales will grow
4.6 percent in 2013 and business investment will increase 7.6
percent, the report showed. By comparison, service providers
estimate revenue will grow 4.3 percent this year and that
capital spending will rise 7 percent, the ISM said.

There are also signs that the worst of the slowdown in
overseas markets is over. China’s manufacturing expanded at the
fastest pace in 19 months in December, boosting optimism that a
recovery in the world’s second-biggest economy is gaining
traction, according to data this week.